How Vuori is taking on Lululemon

When athleisure brand Vuori launched in 2015, it was headquartered in a garage, sold only men’s shorts and couldn’t get investors to give it the time of day.

Now, the Carlsbad, Calif., retailer is expanding globally, backed by a string of marquee investors including General Atlantic, SoftBank and Norwest Venture Partners, after raising $825 million in a funding round in November that valued the company at $5.5 billion.

It has become the envy of those in charge Lululemon, of the gap Athleta and Levi’s Beyond Yoga, and it’s poised to become one of the retail industry’s largest IPOs when it finally files to go public, which people close to the company say it plans to do.

“It’s a significant deal for the segment it’s in… You haven’t seen many deals in that market over the last couple of years, and the deals that have been done have been more, I would say, challenged or value-based situations,” Mathew. Tingler, a managing director in Baird’s global consumer and retail investment banking group, said of the recent funding round.

“Wholesale is bringing a lot of excitement and growth to the market,” added Tingler, an athletic apparel specialist who was not involved in the transaction. “In a way, they’re taking a huge share of that athletic market… They’re challenging the legacy players of Athleta and Lululemon.”

As Vuori has gone from a no-name brand to one of the most valuable personal apparel retailers on the planet, it has seen strong sales growth and consistent profitability, winning customers over in coastal California athleisure.

“Vhuri competes on a differentiated product, a differentiated brand, a differentiated store experience, differentiated content,” Bhuri CEO and founder Joe Kudla told CNBC in an interview. “If you were to survey our customer base (and ask), ‘Why is Vuori so special?’ They will tell you it’s because of our product, it’s comfortable, the textiles, the fabrics we work with and we’re all about product, product, product, and that’s the result of great performance in our industry.”

Despite its success, Bhuri faces challenges ahead. The company operates in a crowded athleisure space that analysts aren’t sure will grow as fast as it has in the past. Some see it as one of the fastest-growing clothing categories, while others expect it to slow as consumers look back on dressing up year after year.

Customers also seem concerned whether Vuori’s products will remain the same as it faces the scale and demands of being a publicly traded company.

“If you go to the message boards right now, the thing that Vuori consumers are most concerned about is, is the quality of the fabric going down?” Liston Pittman, a strategy director at EatBigFish and an expert on the Challenger brand. “Are they watering down the brand I love in exchange for growth?”

Also, Vuori faces the same problems as other consumer discretionary companies. Retailers have been forced to work harder to win customers’ dollars, and demand has been volatile as consumers think twice before buying things that may be needed rather than needed.

Since it is still private, not much is known about Bhuri’s financial performance. But analysts estimate it generates about $1 billion in annual revenue, and the company says it has been profitable since 2017.

Although its sales are a fraction of the $431 billion global athleisure market, Vuori has grown steadily and outpaced the overall sportswear market at least through 2020, according to Euromonitor data and Earnest’s sales estimates. As of the end of October, Bhuri has seen a 23% increase in sales so far this year while the overall sportswear market is expected to grow 4.3%. Last year, it grew 44% while the sportswear market expanded just 2.4%.

Retail analyst Randy Konick, a managing director at Jefferies, said Vuri and fellow upstart Alo Yoga were successful in part because they were taking share from Lululemon, which he said alienated its primary customer base as it expanded into new categories.

“Five years ago, there were lights and fries…nothing burgers, and that’s when Lululemon was growing 20% ​​a year, whatever, or more. Today, you look at the numbers and you think, wait a second. Wait, business is flat,” Connick said, Referring to America, Lululemon’s largest market. “It’s not growing, and yet it’s coinciding with the hypergrowth of light and wheat. So … in my opinion, the data shows that it’s a market share issue.”

Analytics firm GlobalData found that Lululemon customers are now spending more on brownies than ever before. In 2018, 1.2% of Lululemon’s customers shopped at Woori, but that number had risen to 7.8% by the end of November.

Last week, the longtime category leader offered a cautious outlook for the all-important holiday shopping season as it grapples with sluggish growth and product missteps. It was not asked about the competitive threats it faces but admitted that its core customer base is slowing down.

Interest from Vuori’s valuation and private equity comes as investors flee the consumer sector. Its success has some industry watchers scratching their heads and wondering: How can a leggings and joggers company be so valuable in this economy? Analysts say it comes down to Bhuri’s business model, ability to grow profitably and its product portfolio, which have resonated with buyers.

Kudla said the company focused on growing profitably from the start because it really had no other option. Unlike other direct-to-consumer brands that were raking in the cash at the time, investors weren’t interested in the men-only brand that was pitching the hoe.

So he was forced to bootstrap the company using funds from family and friends.

“We created a working capital model that would self-fund the business, and so we were built against the trends of the time, and that resulted in a really great business with a lot of discipline,” said Kudla, who was one of the arrivals at Ernst & Young Fashion. Previously CPA. “I ran the whole business through this complicated spreadsheet, so every decision I made, I could predict the cash-flow impact six months from now.”

To save money, Kudla didn’t pay himself for two years, running the business out of a garage and hiring employees willing to trade equity for compensation. Perhaps most importantly, he developed partnerships with his suppliers, which reduced the cash-intensive burden of acquiring inventory and paying for it up front.

“I started treating our suppliers like they were investors in the business, and really helping them see the vision of what we were building,” Kudla said. “I was able to convince our primary factory partners to give us really great terms so that I could get the inventory, sell it, collect cash from my wholesale partners or sell it directly to the consumer, and then pay for the inventory. and that strategy ultimately led me to create a working capital model that self-financed our growth.”

While Vuori started as a purely online business, Kudla didn’t value partnering with wholesalers at a time when many founders in the direct-to-consumer space were against the idea. By getting his products on REI’s shelves in the brand’s early days, he was able to build awareness and acquire customers in a way that didn’t hurt Vuori’s balance sheet.

“We became profitable in 2017, we started generating free cash flow … we had no institutional capital involved in our business, no venture capital involved in our business, until 2019, when we were already very profitable and a pretty strong I was on a growth trajectory,” Kudla said.

Years later, Kudlar’s approach seems almost prescient. Many of the DTC peers that Vuori brought in are now on the brink of bankruptcy, unable to make their business unit economics work. Investors have no more patience for companies with no path to profitability.

Now, most brands and retailers recognize that selling only online often doesn’t work. This has proven important for building direct channels online as well as partnering with wholesalers and opening stores.

“I like how (wheat) is growing,” said Jessica Ramirez, senior research analyst at Jane Hawley & Associates. “With REI, it was one of their top accounts, and I think that was a different way to go wholesale, but very targeted wholesale, so knowing that this is a customer that will buy a specific type of activewear.”

Investments in wheat from General Atlantic and Stripes in November are further evidence of a strong balance sheet. The deal was structured as a secondary tender offer, allowing the initial investors to sell their shares and cash in. None of that went on the balance sheet, and Bhuri didn’t need new funding for its aggressive growth plans, which included expansion into Europe. and Asia and will have 100 stores by 2026, Kudla said.

“We will continue to grow the business the way we have grown the business, which is calculated with a lot of discipline,” he said.

In many ways, brands jostling to share the crowded sports space can blur together. They all sell leggings, they all sell sports bras, and they all seek to win over consumers with their unique blend of comfort, style, and performance. The same can be said for the apparel industry at large, which is why having products separates the industry’s winners and losers.

Bhuri fans say the brand’s quality, fit, fabric and comfort are what set it apart from competitors and keep them coming back. Meanwhile, product missteps at Lululemon have been blamed for slumping sales in its largest region, the Americas.

In the three months ended April 28, Lululemon’s comparable sales in the U.S. were flat as the company failed to offer the right color assortment of leggings and the sizes customers wanted.

In early July, Lululemon introduced its new Breezethrough leggings, designed for hot yoga classes, but pulled them from shelves after receiving complaints about the product’s ill-fitting fit. Its lack of desirable new products is also limiting how much Lululemon’s core customers are spending with the brand, the company said when it reported fiscal third-quarter earnings on Dec. 5. 2025, which Trieste expects will be the “key driver” for better US sales, especially since it’s an easier period than a year ago.

“It seems like they’ve snoozed on where the customer is going… you have to remember that today’s consumer is not necessarily a loyal consumer,” Ramirez said.

“Fabric matters, movement matters… if someone you know mentions that there’s another brand that’s like, ‘Oh, you know it holds me better, or I run faster, I don’t sweat as much, I don’t’ feels gross.” No,’ these are very, like, small things that matter in your performance, people will try them.”

– Additional reporting by Natalie Rice